Philip
G.
Berger

Wallman Family Professor of Accounting

Phil Berger's research interests are mainly in the areas of financial reporting and corporate finance. Some of the major themes addressed in his work include: (1) the valuation consequences of diversification strategies; (2) the use of financial statement data to value real options; (3) the impact of managerial entrenchment on corporate finance and financial reporting decisions; (4) the effects of disclosure on capital markets; (5) the motives for choosing opaque versus transparent financial reporting practices and (6) factors influencing R&D investment and financing decisions including the use of off-balance-sheet financing.

Berger's research has been published widely in accounting and finance journals, including The Accounting Review, the Journal of Accounting & Economics, the Journal of Accounting Research, the Journal of Financial Economics, the Journal of Finance, and the Review of Financial Studies. He has received several research prizes and counts among his publications one of the most widely cited papers by an accounting professor. He has been a co-editor of the Journal of Accounting Research since 2004.

He previously served on the faculty of The Wharton School of the University of Pennsylvania (1991-2002) and also served as a visiting associate professor at MIT's Sloan School of Management (1998-99).

His teaching interests are mainly in financial accounting, financial statement analysis, and empirical accounting research. His teaching experience covers undergraduate, MBA, executive, and Ph.D. courses. While at Wharton, he won every MBA teaching award that the Wharton School offers. At Chicago Booth, he has been awarded the 2011 Phoenix Prize.

Berger holds Ph.D. and MBA degrees from the University of Chicago as well as undergraduate and graduate degrees from the University of Saskatchewan, Canada.

REVISION: Firm Specific Information and the Cost of Equity Capital
Date Posted:
Apr 16,
2018
We develop a comprehensive and large-sample measure of a firm's information quality. The measure is the ratio of firm-specific return variation to firm-specific cash-flow variation. Empirical evidence supports the validity of our measure. Using this measure, we find that cost of equity capital decreases by about 0.4% on an annual basis if a firm's information quality increases by one standard deviation. This is consistent with the joint hypotheses that (1) firm-specific stock returns contain economic information as argued by Morck, Yeung, and Yu (2000) and (2) better information quality can lower the cost of equity.

REVISION: Commercial Lending Concentration and Bank Expertise: Evidence from Borrower Financial Statements
Date Posted:
May 23,
2017
Lending concentration features prominently in models of information acquisition by banks, but empirical evidence on its role is limited because banks rarely disclose details about their exposures or information collection. Using a dataset of bank-level commercial loan exposures, we find banks are less likely to collect audited financial statements from firms in industries and regions in which they have more exposure. These findings are stronger in settings in which adverse selection is acute and muted when the bank lacks experience with an exposure. Our results offer novel evidence on how bank characteristics are related to the type of financial information they use and support theoretical predictions suggesting portfolio concentration reveals a bank’s relative expertise.

New: Do Analysts Say Anything About Earnings Without Revising Their Earnings Forecasts?
Date Posted:
Feb 08,
2016
We identify a novel bias in analyst forecasts, after revision bias, which we identify by examining an analyst’s reports after his final earnings forecast of the quarter. We document that (i) qualitative predictions from the text of reports, (ii) share price target revisions, and (iii) revisions to next quarter’s earnings forecast predict error in the current quarter’s earnings forecast. Market returns are slow to impound the information in qualitative predictions and share price target revisions. Analysts are more likely to disseminate positive news after the current quarter’s final earnings forecast, consistent with analysts acting to maintain a beatable benchmark for managers. We argue our findings are consistent either with analysts acting to tip clients or with frictions limiting the frequency of quarterly forecast revisions. Our results demonstrate that the value of the current quarter’s earnings forecast to managers and investors distorts the flow of information into the ...

REVISION: Discretionary Disclosure in Financial Reporting: An Examination Comparing Internal Firm Data to Exte
Date Posted:
Nov 18,
2009
We use confidential, U.S. Census Bureau, plant-level data to investigate aggregation in external reporting. We compare firms’ plant-level data to their published segment reports, conducting our tests by grouping a firm’s plants that share the same four-digit SIC code into a “pseudo-segment.” We then determine whether that pseudo-segment is disclosed as an external segment, or whether it is subsumed into a different business unit for external reporting purposes. We find pseudo-segments are more ...

REVISION: Segment Profitability and the Proprietary and Agency Costs of Disclosure
Date Posted:
Jan 28,
2007
We exploit the change in U.S. segment reporting rules (from SFAS 14 to SFAS 131) to examine two motives for managers to conceal segment profits: proprietary costs and agency costs. Managers face proprietary costs of segment disclosure if the revelation of a segment that earns high abnormal profits attracts more competition and hence reduces the abnormal profits. Managers face agency costs of segment disclosure if the revelation of a segment that earns low abnormal profits reveals unresolved ...

REVISION: Segment Profitability and the Proprietary and Agency Costs of Disclosure
Date Posted:
Jan 03,
2007
We exploit the change in U.S. segment reporting rules (from SFAS 14 to SFAS 131) to examine two motives for managers to conceal segment profits: proprietary costs and agency costs. Managers face proprietary costs of segment disclosure if the revelation of a segment that earns high abnormal profits attracts more competition and hence reduces the abnormal profits. Managers face agency costs of segment disclosure if the revelation of a segment that earns low abnormal profits reveals unresolved ...

REVISION: The Impact of SFAS No. 131 on Information and Monitoring
Date Posted:
Dec 11,
2006
We investigate the effect of the FASB's new segment reporting standard on the information and monitoring environment. We compare hand-collected, restated SFAS 131 segment data for the final SFAS 14 fiscal year to the historical Statement 14 data. We find that Statement 131 increased the number of reported segments and provided more disaggregated information. Analysts and the market had access to a portion of the new segment information before it was made public, but analyst and market ...

Segment Disclosures, Proprietary Costs, and the Market for Corporate Control
Date Posted:
Feb 23,
2003
Recent studies provide evidence that the new segment reporting rule, SFAS 131, induced companies to provide more disaggregated segment information. We use adoption of the new standard to identify firms that aggregated segment information under the old standard, SFAS 14, and examine two motives for managers to aggregate segment information. First, withholding proprietary information and, second, avoiding external scrutiny from the market for corporate control. We find firms that increased their ...

Discussion of 'Anomalous Stock Returns Around Internet Firms' Earnings Announcements'
Date Posted:
Feb 05,
2003
Trueman, Wong, and Zhang (TWZ) investigate an apparent anomaly in the pricing of internet firms around their earnings announcements, which they attribute to price pressure. The discussion addresses three concerns. The paper is unusual in choosing an event (earnings announcements) that does not appear to have an obvious non-information-related reason for triggering unjustified changes in demand for the firm's shares. Relatedly, there are limitations to the tests made of the price pressure ...

The Effect of Extreme Accounting Events on Analyst Following and Forecast Accuracy
Date Posted:
May 01,
2000
This paper uses a simultaneous equations system to examine the effect of extreme accounting events in the previous fiscal year on analyst following and forecast accuracy. We measure extreme accounting events by the magnitude of a company's restructuring charges and by an information signal based on the fundamental variables in Lev and Thiagarajan (1993). Our results indicate that the existence of an extreme accounting event impairs analysts' ability to predict future earnings. These results ...

The Role of Taxes, Financial Reporting, and Other Market Imperfections in Structuring Divisive Reorg...
Date Posted:
Apr 26,
2000
We examine the relative importance of taxes and nontax factors in explaining companies' decision to divest using a sale to a third party versus a spinoff to existing shareholders. We find that taxes outweigh financial reporting motives for unaggressive financial reporters, but that the two factors are weighted equally by aggressive reporters. This finding adds to the literature on firms' willingness to forsake tax benefits in order to increase reported income. Additional results indicate that ...

Investor Valuation of the Abandonment Option
Date Posted:
Apr 25,
2000
We investigate whether investors use balance sheet information to value their option to abandon the continuing business in exchange for the assets' exit value. As opposed to papers that examine the potential for balance sheet disclosures to provide incremental information about the expected level of future going-concern cash flows, our study assesses the extent to which balance sheet information affects firm value given the level of expected going-concern cash flows. Theory prices the ...

A Simultaneous Equations Analysis of Forecast Accuracy, Analyst Following, and Trading Volume
Date Posted:
Nov 23,
1999
We use a simultaneous equations model to study forecast accuracy, analyst following, and trading volume. Forecast accuracy and analyst following are determined simultaneously, with greater accuracy associated with higher following. This result supports the idea that an analyst?s private information complements, rather than substitutes for, factors that increase certainty about the firm?s prospects. Stocks generating more trading volume (and thus greater brokerage commissions) have higher ...

Causes and Effects of Corporate Refocusing Programs
Date Posted:
Dec 08,
1998
Despite the weakening disciplinary role of the takeover market, there has been a rash of divestiture and split-up announcements recently by such prominent firms as AT&T, ITT, W.R. Grace, and many others. In this paper we examine refocusing decisions by diversified firms that have not been taken over, with the goal of closing some of the gaps in our understanding of the workings of different sources of management discipline. We study the effect on refocusing likelihood of four factors: The ...

Causes and Effects of Corporate Refocusing
Date Posted:
Dec 08,
1998
We study the precursors and outcomes of refocusing episodes by 107 diversified firms that were not taken over between 1984 and 1993. These firms had more value-reducing diversification policies than diversified firms that did not refocus. However, major disciplinary or incentive-altering events (including management turnover, outside shareholder pressure, changes in management compensation, and financial distress) usually occurred before refocusing took place. The cumulative abnormal returns ...

Bustup Takeovers of Value-Destroying Diversified Firms
Date Posted:
Feb 05,
1998
We examine whether the value loss from diversification affects takeover and break-up probabilities. We estimate diversification's value effect by imputing stand-alone values for individual business segments and find that firms with greater value losses are more likely to be taken over. Moreover, those acquired firms whose losses are greatest are most likely to be bought by LBO associations, which frequently break-up their targets. For a subsample of large diversified targets: (1) higher value ...

Bustup Takeovers of Value-Destroying Diversified Firms
Date Posted:
Feb 05,
1998
We estimate the effect that value-destroying diversification has on the probabilities of takeover and break-up. Recent papers show that unrelated diversification decreased firm value, that the value loss is reversible, that bidder gains from takeovers are higher when their targets' managers have destroyed more value, and that break-ups and selloffs are a common result of takeovers. Considering these findings together leads us to hypothesize that as the amount of value destroyed by a firm's ...

Managerial Entrenchment and Capital Structure Decisions
Date Posted:
Dec 15,
1997
We study associations between managerial entrenchment and firms' capital structures, with results generally suggesting that entrenched CEOs seek to avoid debt. In a cross- sectional analysis, we find that leverage levels are lower when CEOs do not face pressure from either ownership and compensation incentives or active monitoring. In an analysis of leverage changes, we find that leverage increases in the aftermath of entrenchment-reducing shocks to managerial security, including unsuccessful ...